Medical Cannabis Tax Hearing: Just Say “NO”–“Yeses” Were Silent—But the Debate Has Started

Washington Cannabis Association Offers Middle Ground

Jim Boldt February 19, 2013

HB 1789–The Hearing Of “No Thanks”

House Finance Committee members heard person after person explain why medical marijuana, MMJ, is and should remain completely separate from the state’s new recreational use platform now being formulated by the Washington State Liquor Control Board, LCB. The same interests have said it over and over at the LCB’s public forums held to hear from citizens about the I-502, recreational use of cannabis.

The 1:30 PM Monday hearing was more notable for the interests who signed in “pro” and did not testify. Who would support a 25% gross receipt tax on medicine? Interests that see a need for a level playing field at the retail end of a common product. HB 1789 is allegedly intended to bring some parity to the state’s side of excise taxes on retail cannabis…regardless of purpose or use of the product.

It Doesn’t Add Up

No matter how you read section 27 of I-502, there are three levels of a 25% excise tax. The tax is levied on gross receipts of a transaction between a producer (grower) to a processor or another producer, a separate 25% excise is levied on the transaction between processor and retailer, and a separate 25% excise tax is levied on the gross receipts of the retail sale of cannabis. This is in addition to the sales tax collected at retail. We here at Washington State Wire are mere products of a public education system but we can add. Even if one argues some esoteric internal transaction (and they will) or that a producer can be a processor, there is still arguably a compounded 50% excise tax on recreational cannabis before the buyer gets a chance to throw in nearly 10% sales tax as they pick up their cannabis. So total taxes on recreational cannabis will either be north of 80%, or if you’re tricky enough, somewhere around 50-60%. An HB 1789 imposed twenty-five percent tax on MMJ will not bring tax parity.

Of course none of the MMJ advocates dared tell the committee that if the bill seeks tax parity the percentage proposed needs to be increased say, twice, or three times.

Who Said Aye?

Not testifying but signing in “pro” on HB 1789 were a few interests swirling around the I-502 process. Fairly and rightly these folks are quickly realizing that if the state does not level the cannabis retail playing field for retail taxation, there is a possibility some (how many?) citizens will go to a healthcare provider, get a prescription for cannabis, and obtain their product, for whatever use, free of the large recreational tax. If money is a factor, the leakage could be significant.

The Intersection—The Collision

Two giant trains are barreling down the track and they are headed for an intersection. The Local MMJ and I-502 Express are going to meet at the corner of tax policy and process policy. They eventually must share the same track. The tasks for legislators, as finally discussed to a limited degree at the hearing, are immense. To bring the laws into economic parity which will push out the black market, insure product purity, and appropriate acquisition motives; one will need a two-thirds vote for any changes (I-502), one will need only a majority (unless a new tax is involved: 2/3’s), and the former cannot even be assessed for function until late this year when the LCB finishes it’s platform creation. So, what is an elected to do?

The Remedy? Washington Cannabis Association Offers Middle Ground

First, a hats off to Chairs Carlyle and Hunter for starting the debate with the introduction of a title and a hearing. No one thinks the original bill is the answer, but it’s a start. Representative Carlyle politely sat through some helpful and some torturous testimony yesterday. Folks told him hell no, folks told him to go ahead with the tax, they would create a way around it. Only the Washington Cannabis Association, through their lobbyist Ezra Eickmeyer, offered a pathway to passage. Right or wrong, realistic or not, verifiable or antidotal, Eickmeyer, a three-year veteran of the cannabis debate in Olympia told committee members that with certain changes to the MMJ law, less expensive medicinal product would be available to patients, bring certainty to the MMJ industry, and thus produce more state revenue. There may even be room for a small new excise tax.

Ask this morning to clarify his proposal Eickmeyer added this in an email:
“The Washington Cannabis Association advocates for better streamlining of the cannabis industry. First, we need licensing and regulation of medical providers to ensure purity, bring prices down for patients and to clarify taxation. Second, we need to make technical changes to I-502 to provide more reasonable availability and to ensure price competition with the black market. We believe this approach will cut down on any fraud in medical authorizations while also providing clear rules for the industry and maximizing tax revenues to Washington.”